Former Madoff Trader to Plead Guilty

A former trader at Bernard L. Madoff Investment Securities is expected to plead guilty on Monday to conspiring to defraud firm customers beginning in the early 1970s, two decades earlier than Mr. Madoff claims to have started his Ponzi scheme.

David L. Kugel, who joined the Madoff firm as a trader in 1970, is scheduled to enter his guilty plea in Federal District Court in Manhattan, according to a letter sent to Judge Laura Taylor Swain by federal prosecutors on Wednesday.

The prosecutors said that Mr. Kugel would cooperate with the government’s investigation. He would be the fifth former Madoff executive or employee, including Mr. Madoff, to plead guilty to participating in the fraud.

Daniel L. Zelenko, a lawyer for Mr. Kugel, did not immediately respond to a request for comment.

Given how small the Madoff firm was in the early 1970s, Mr. Kugel could be a significant witness for prosecutors as they continue their investigation. One subject of their inquiry is Peter B. Madoff, Mr. Madoff’s younger brother, according to court documents filed by Peter Madoff’s lawyers in response to civil litigation pending against him. Peter Madoff had worked at his brother’s side at the firm since at least 1970, when he completed law school.

John R. Wing, a lawyer for Peter Madoff, said he had been unaware of Mr. Kugel’s apparent cooperation with the government and repeated that his client had no knowledge of the Madoff fraud, which cost thousands of investors $64.8 billion in paper losses and roughly $18 billion in cash.

Bernard Madoff, who is serving a 150-year prison sentence, has consistently maintained that his enormous Ponzi scheme did not begin until 1992. It collapsed with his arrest on Dec. 11, 2008.

Prosecutors have disputed his version of events, and Mr. Kugel’s plea would be the first opportunity for them to present evidence in court that challenges Bernard Madoff’s claim.

In addition to Mr. Kugel and the four who have pleaded guilty, five other former Madoff executives and employees have been charged as co-conspirators. These five, who include Daniel Bonventre, the firm’s former chief of operations, have all denied the charges and are awaiting trial.

Last November, the bankruptcy court trustee seeking money for the victims of the fraud sued Mr. Kugel and his family for more than $22 million. The trustee accused Mr. Kugel of playing a significant role in a fraudulent “convertible arbitrage” strategy that predated, and was distinct from, the complex stock-and-option strategy that Bernard Madoff later claimed to be using.

While Mr. Kugel “may or may not have been the mastermind” behind that arbitrage investment fraud, the trustee, Irving H. Picard, said, “there is no doubt regarding his role in carrying out the fraud involving this strategy.”

Mr. Picard said that, as part of the arbitrage fraud, Mr. Kugel created fake trade tickets showing steady profits for select customers. The trustee cited paperwork from the Madoff files detailing at least one questionable trade made as early as August 1977.

Mr. Kugel, who lives in Manhasset, on Long Island, made more than $8 million working for Bernard Madoff, according to Mr. Picard’s lawsuit.